Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-Q/A
(Amendment
No. 1)
(Mark
One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2018
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from__________to__________
Commission File No.
000-55779
LIBERATED SYNDICATION INC.
(Exact name
of registrant as specified in its charter)
NEVADA
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47-5224851
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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5001
Baum Boulevard, Suite 770
Pittsburgh, Pennsylvania 15213
(Address of
Principal Executive Offices)
Registrant's
Telephone Number: (412) 621-0902
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
☒
No☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of
‘‘large accelerated filer”, “accelerated
filer,’’ “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated
filer
|
☒
|
Smaller reporting company
|
☒
|
|
|
Emerging
growth company
|
☒
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☒
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes☐No☒
As of
May 11, 2018, there were 29,776,974 shares of common stock, par
value $0.001, of the registrant issued and
outstanding.
Explanatory Note
This
Quarterly Report on Form 10-Q/A (Amendment No. 1) amends the
Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission (the “SEC”) by Liberated
Syndication Corp. (the “Company”) on May 15, 2018 (the
“Original 10-Q”) to restate our unaudited consolidated
financial statements for the quarterly period ended March 31, 2018
and to amend related disclosures.
Background of the Restatement
On
April 28, 2020, the Audit Committee of the Board of Directors of
Liberated Syndication Inc, a Nevada corporation (the
“Company”) determined that (a) the Consolidated Balance
Sheet as of December 31, 2018, (b) the Consolidated Statement of
Operations for the year ended December 31, 2018, (c) the Statement
of Stockholders’ Equity for the year ended December 31, 2018,
and (d) the Consolidated Statement of Cash Flows for the year
December 31, 2018, all as presented in the Company’s Annual
Report on Form 10-K for the Period Ended December 31, 2018, as
previously filed with the U.S. Securities and Exchange Commission
on March 14, 2019, should not be relied upon. Subsequent to such determination, the Company
reviewed the related interim financial statements and interim
financial statements for the first three quarters of 2019 and 2018,
and as a result of such review, on May 20, 2020, the Audit
Committee determined that such interim financial statement should
likewise no longer be relied upon.
Specifically,
the amounts reported in the Consolidated Balance Sheet as of March
31, 2018 for total assets, current liabilities, and consequently
total liabilities and total stockholders’ equity, were
determined to be materially different. Additionally, the income tax
benefit in the Consolidated Statement of Operations for the three
months ended March 31, 2018 was changed. As a result, the net
income and the basic and diluted income per common share were
determined to be materially different. The Consolidated Statement
of Cash Flows for the three months ended March 31, 2018 also
changed as a result of the deferred income taxes and income tax
payable for 2018.
During
the 2019 audit process, it was discovered through an ongoing IRS
examination that the Company owed Federal tax for
2018.
The IRS
examination uncovered an error in calculating the Net Operating
Loss Carryforward (NOL) resulting from the spin-off of Libsyn in
2016. At December 31, 2017, the Company had recorded an NOL of
approximately $14 million. The NOL was part of deferred tax asset
which was valued at $0 on the balance sheet, as it had a full
valuation allowance. Consequently, the Company was not recognizing
tax expenses or the associated tax payable during 2018. However, as
the IRS examination continued, it has become clear that the $14
million NOL was overestimated by approximately $12.5 million, and
by March 31, 2018, that the NOL has been completely utilized. The
result is that the Company ought to have begun recording income tax
(benefit) expense in 2018.
This
Federal Tax Balance will be paid with an amended return in
2020.
The
Company has temporary tax differences which result in a deferred
tax asset (DTA). Under the provisions of ASC Topic 740, a DTA is to
be recognized for the potential future tax benefit from a loss
carryforward. Full realization of the benefit, however, depends on
the Company having income in future years.
Because
the NOL has been completely utilized and the Company is now
consistently recording profits, a DTA with the associated payable
should have been recorded in 2018. DTAs represent future income tax
benefits. But the tax benefits will be realized only if there is
sufficient taxable income from which the deductible amount can be
deducted.
Impact of the Restatement
As a
result of the restatement, reported net income from continuing
operations was increased by $1,271,059, or $0.04 per basic and
diluted share for the three months ended March 31, 2018. Total
assets increased by $1,336,905 at March 31, 2018. Current and total
liabilities increased by $65,846 at March 31, 2018. Accumulated
deficit decreased by $1,271,059 at March 31, 2018.
Items Amended in this Filing
For the
convenience of the reader, this Form 10-Q/A sets forth the Original
Filing, in its entirety, as amended to reflect the restatement. No
attempt has been made in this Form 10-Q/A to update other
disclosures presented in the Original Filing, except as required to
reflect the effects of the restatement. The following items have
been amended as a result of the restatement:
Item 1.
Financial Statements
Item 2.
Management Discussion & Analysis
PART I
- FINANCIAL INFORMATION
Item 1. Financial
Statements.
The
Unaudited Condensed Consolidated Financial Statements of Liberated
Syndication Inc., a Nevada corporation ( the “Company,”
“Libsyn,” “Pair”, “we,”
“our,” “us” and words of similar import),
required to be filed with this 10-Q Quarterly Report were prepared
by management and commence on the following page, together with
related notes. In the opinion of management, the Unaudited
Condensed Consolidated Financial Statements fairly present the
financial condition of the Company.
LIBERATED
SYNDICATION INC.
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FINANCIAL
STATEMENTS
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CONTENTS
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PAGE
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Unaudited
Condensed Consolidated Balance Sheets
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4
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Unaudited
Condensed Consolidated Statements of Operations
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5
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Unaudited
Condensed Consolidated Statements of Cash Flows
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6
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Notes
to Unaudited Condensed Consolidated Financial
Statements
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7
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3
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
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March 31, 2018
(As Restated)
(Unaudited)
|
December 31,
2017
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CURRENT
ASSETS:
|
|
|
Cash
|
$ 6,587,745
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$ 5,211,845
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Accounts
receivable, net
|
671,683[1]
|
660,139[1]
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Prepaid
expenses
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142,699
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186,425
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Prepaid domains,
net
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108,623
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-
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Total current
assets
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7,510,750
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6,058,409
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Property and equipment,
net
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2,704,454
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3,007,025
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Goodwill
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16,388,171
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16,352,069
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Definite life - intangible
assets
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9,179,671
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9,644,000
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Prepaid domains, net of
current portion
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72,835
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-
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Other
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3,582
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7,076
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Deferred tax
assets
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1,336,905
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-
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Total
assets
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$ 37,196,368
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$ 35,068,579
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CURRENT
LIABILITIES:
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Accounts
payable
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$ 484,596
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$ 440,565
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Income tax
payable
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65,846
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-
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Accrued
expenses
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313,013
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769,485
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Deferred revenue,
net
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1,910,125
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1,247,686
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Current portion of
capital lease obligation
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70,160
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69,243
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Current portion of
loans payable, net
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1,568,254
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1,566,634
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Total current
liabilities
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4,411,994
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4,093,613
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LONG
TERM LIABILITIES:
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Loans payable, net
of current portion
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7,927,769
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8,320,366
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Capital lease obligation, net of current
portion
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55,929
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73,817
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Deferred revenue,
net
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260,814
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133,617
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Total long-term
liabilities
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8,244,512
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8,527,800
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Total
liabilities
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12,656,506
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12,621,413
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STOCKHOLDERS'
EQUITY
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|
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Common
stock
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29,778
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29,596
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Additional paid-in
capital
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35,092,997
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34,804,457
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Accumulated
Deficit
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(10,582,913)
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(12,386,887)
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Total stockholders'
equity
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24,539,862
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22,447,166
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Total liabilities and
stockholders' equity
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$ 37,196,368
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$ 35,068,579
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Liberated Syndication Inc. and Subsidiaries
Balance Sheet (Parenthetical)
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Statement of Financial
Position
|
March 31,
2018
(As
Restated)
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December 31,
2017
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Allowance for doubtful
accounts
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14,000
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14,000
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Common stock
authorized
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200,000,000
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200,000,000
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Common stock par
value
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0.001
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0.001
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Common stock
outstanding
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29,776,974
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29,595,473
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The accompanying notes are an integral part to
the unaudited condensed consolidated financial
statements.
4
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
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Three Months
Ended
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March 31,
2018
(As Restated)
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March 31,
2017
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Revenue
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$ 5,059,305
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$ 2,494,111
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Costs and operating expenses
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Cost
of revenue (excluding depreciation and
amortization)
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707,370
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617,054
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General and administrative
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1,387,312
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468,247
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Non-cash compensation
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318,000
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1,752,000
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Technology
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373,326
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143,042
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Selling
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217,002
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76,038
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Customer support
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668,230
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191,820
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Depreciation and
amortization
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766,900
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4,304
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Total costs and operating
expenses
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4,438,140
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3,252,205
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Operating income (loss)
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621,165
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(758,394)
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Interest expense
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(100,596)
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-
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Interest income
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9,665
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-
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Other income (expense)
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2,681
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-
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Income (loss) from
operations
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532,915
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(758,394)
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Income tax expense (benefit)
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(1,271,059)
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-
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Net
Income (loss)
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$ 1,803,974
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$ (758,394)
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BASIC AND DILUTED INCOME (LOSS) PER COMMON
SHARE
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$ 0.06
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$ (0.03)
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BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
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29,644,362
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23,725,860
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The accompanying notes are an integral part to
the unaudited condensed consolidated financial
statements.
5
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS
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March 31,
2018
(As Restated)
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March 31,
2017
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Cash Flows from Operating
Activities
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Net income
(loss)
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$ 1,803,974
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$ (758,394)
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Adjustments to reconcile net income to net cash
provided by operating activities:
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Depreciation
and amortization expense
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766,900
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4,304
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Issuance
of common stock
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318,000
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1,752,000
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Deferred
income taxes
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(1,336,905)
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-
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Discount
on loan fees
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9,023
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-
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Change
in assets and liabilities:
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Accounts
receivable
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(76,925)
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(248,402)
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Prepaid
expenses
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(134,237)
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(53,769)
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Accounts
payable
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44,031
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38,109
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Income
taxes payable
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65,846
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-
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Accrued
expense
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(456,472)
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(291,575)
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Deferred
revenue
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789,635
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5,202
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Net
Cash Provided by Operating Activities
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1,792,870
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447,475
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Cash Flows from Investing
Activities:
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Net
Cash Used in Investing Activities
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-
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-
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Cash Flows from Financing
Activities:
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Repayment on term
loan
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(400,000)
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-
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Repayment on
capital lease
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(16,970)
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-
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Net
Cash Used in Financing Activities
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(416,970)
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-
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Net Increase in
Cash
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1,375,900
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447,475
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Cash at Beginning of
Period
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5,211,845
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4,875,458
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Cash at End of
Period
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$ 6,587,745
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$ 5,322,933
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Supplemental Disclosures of
Cash Flow Information
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Cash paid during
the periods for:
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Interest
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$ 96,730
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$ -
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Income
taxes
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-
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-
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Supplemental Non-Cash
Investing and Financing Activities
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Returned Common Stock
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$ 29,278
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$ -
|
The accompanying notes are an integral part to
the unaudited condensed consolidated financial
statements
6
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization – Liberated
Syndication Inc., (“Company”, “parent”), a
Nevada Corporation, was organized on September 30, 2015. Webmayhem,
Inc. (“Libsyn”), a Pennsylvania corporation, currently
a wholly owned subsidiary of the Company, was originally organized
on January 1, 2001. Libsyn provides podcast hosting services for
producers of content. Libsyn also offers ad insertion on certain of
the producers’ content. On December 27, 2017, the Company
purchased all the issued and outstanding shares of Pair Networks
Inc., (“Pair”), a Pennsylvania corporation, and
subsidiaries Ryousha Kokusai, LLC (”Ryousha”) and
660837 N.B., Inc. (“NB”), in a transaction accounted
for as a purchase. Pair provides web hosting services and domain
name registrations.
Basis of
Presentation – Our financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States (GAAP) and include our accounts and
the accounts of our subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Our interim financial statements are unaudited,
and in our opinion, include all adjustments of a normal recurring
nature necessary for the fair presentation of the periods
presented. The results for the interim periods are not necessarily
indicative of the results to be expected for any subsequent period
or for the year ending December 31, 2018.
These financial statements should be read in
conjunction with our audited consolidated financial statements and
related notes included in our Annual Report on Form 10-K for the
year ended December 31, 2017 (the 2017 Form
10-K).
Prior Period
Reclassifications - Reclassifications of certain immaterial
prior period amounts have been made to conform to the current
period presentation.
Part of cost of
revenue has been reclassified to technology and depreciation and
amortization. Part of general and administrative has been
reclassified to non-cash compensation and customer
support.
Consolidation - The financial statements
presented reflect the accounts of the parent, Libsyn, Ryousha, NB
and Pair. All inter-company transactions have been eliminated in
consolidation.
Accounting
Estimates – The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Management made assumptions and
estimates for determining reserve for accounts receivable,
depreciation of fixed assets and in determining the impairment of
definite life intangible assets and goodwill. Actual results could
differ from those estimated by management.
Our more significant estimates
include:
●
the
determination of the best estimate of selling price of the
deliverables included in multiple-deliverable revenue
arrangements;
●
the
fair value of assets acquired, and liabilities assumed in business
acquisitions;
●
the
assessment of recoverability of long-lived assets, including
property and equipment, goodwill and intangible
assets;
●
the
estimated reserve for refunds;
●
the
estimated useful lives of intangible and depreciable
assets;
●
the
grant date fair value of equity-based awards;
●
the
recognition, measurement, and valuation of current and deferred
income taxes;
We periodically evaluate these estimates and
adjust prospectively, if necessary. We believe our estimates and
assumptions are reasonable; however, actual results may differ from
our estimates.
Cash and Cash
Equivalents – The Company considers all highly liquid
investments with an original maturity date of three months or less
when purchased to be cash equivalents. At March 31, 2018, the
Company had $6,045,217 cash balances in excess of federally insured
limits.
Accounts
Receivable – Accounts receivable consist of trade
receivables arising in the normal course of business. At March 31,
2018 and 2017, the Company has an allowance for doubtful accounts
of $14,000 and $14,000, respectively, which reflects the
Company’s best estimate of probable losses inherent in the
accounts receivable balance. The Company determines the allowance
based on known troubled accounts, historical experience, and other
currently available evidence. During the three months ended March
31, 2018 and 2017, the Company adjusted the allowance for bad debt
by $0.
Depreciation – Depreciation of
property and equipment is provided on the straight-line method over
the estimated useful lives.
7
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – continued
Long-lived
intangible assets – The Company evaluates its
long-lived assets for impairment whenever events or change in
circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to the
future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is the excess of the carrying amount over the fair
value of the asset.
Technology - Software development costs associated with
software to be sold, leased, or for internal use are expensed as
incurred until technological feasibility, defined as a working
model or prototype, has been established. At that time, such costs
are capitalized until the product is available for general release.
To date, costs incurred between the completion of a working model
and the point at which the product is ready for general release
have been insignificant. Accordingly, the Company has expensed all
such costs to research and development during the three months
ended March 31, 2018 and 2017. Research and development
costs totaling $373,326 and 143,042 for the three months ended
March 31, 2018 and 2017, respectively, were included in cost of
revenue.
Goodwill
– Goodwill is
evaluated for impairment annually in the fourth quarter of the
Company’s fiscal year, and whenever events or changes in
circumstances indicate the carrying value of goodwill may not be
recoverable. Triggering events that may indicate impairment
include, but are not limited to, a significant adverse change in
customer demand or business climate that could affect the value of
goodwill or a significant decrease in expected cash flows.
Management noted no triggering events during the period ended March
31, 2018.
Advertising
Costs – Advertising costs are expensed as incurred and
amounted to $40,434 and $8,867 for the three months ending March
31, 2018 and 2017, respectively.
Fair Value of
Financial Instruments – The Company accounts for fair
value measurements for financial assets and financial liabilities
in accordance with FASB ASC Topic 820. The authoritative guidance,
which, among other things, defines fair value, establishes a
consistent framework for measuring fair value and expands
disclosure for each major asset and liability category measured at
fair value on either a recurring or nonrecurring basis. Fair value
is defined as the exit price, representing the amount that would
either be received to sell an asset or be paid to transfer a
liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use
in pricing an asset or liability. As a basis for considering such
assumptions, the guidance establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
●
Level 1. Observable inputs such as quoted prices
in active markets for identical assets or
liabilities;
●
Level 2. Inputs, other than the quoted prices in
active markets, that are observable either directly or indirectly;
and
●
Level 3. Unobservable inputs in which there is
little or no market data, which require the reporting entity to
develop its own assumptions.
Unless otherwise disclosed, the fair value of
the Company’s financial instruments including cash, accounts
receivable, prepaid expenses, and accounts payable, deferred
revenue and accrued expenses approximates their recorded values due
to their short-term maturities.
Revenue
Recognition - On January 1, 2018, we adopted the Financial
Accounting Standards Board's (FASB) new revenue recognition
standard using the modified retrospective method applied to those
contracts not completed as of January 1, 2018. Results for
reporting periods beginning after January 1, 2018 are presented
under the new standard, while prior period amounts were not
adjusted and continue to be reported in accordance with our
historic accounting.
The adoption of the new standard did not have a
material impact to our financial statements.
Revenue is recognized when control of the
promised services is transferred to our customers, in an amount
reflecting the consideration we expect to be entitled to in
exchange for those services.
8
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – continued
Certain products are generally sold with a right
of return within our policy, which are accounted for as variable
consideration when estimating the amount of revenue to recognize.
Refunds are estimated at contract inception using the expected
value method based on historical refund experience and updated each
reporting period as additional information becomes available and
only to the extent it is probable a significant reversal of any
incremental revenue will not occur. Refunds reduce deferred revenue
at the time they are granted and resulted in a reduced amount of
revenue recognized over the contract term of the applicable service
compared to the amount originally expected.
Our revenue is categorized and disaggregated as
follows:
Domains -
Domains revenue primarily consists of domain registrations and
renewals, domain privacy, domain application fees, domain
back-orders, aftermarket domain sales and fee surcharges paid to
ICANN. Domain registrations provide a customer with the exclusive
use of a domain during the applicable contract term. After the
contract term expires, unless renewed, the customer can no longer
access the domain. Consideration is recorded as deferred revenue
when received, which is typically at the time of sale, and revenue,
other than for aftermarket domain sales, is recognized over the
period in which the performance obligations are satisfied, which is
generally over the contract term. Aftermarket domain revenue is
recognized when ownership of the domain is transferred to the
buyer.
Hosting
Services - Hosting services revenue primarily consists of
website hosting products, website building products and services,
website security products, an online shopping cart and online
visibility products and email accounts. Consideration is recorded
as deferred revenue when received, which is typically at the time
of sale, and revenue is recognized over the period in which the
performance obligations are satisfied, which is generally over the
contract term.
Podcast
Hosting - Podcast hosting publishing services are billed on
a month to month basis, with first month’s bill prorated to
the end of the month so all performance obligations are satisfied
at each month-end. Consideration is recorded as revenue as the
services, the underlying performance obligation, are provided and
or satisfied and collection is probable which is generally when
received.
Media
Subscription Services - The Company facilitates the sale of
producers’ premium content through the sale of subscriptions.
The amount earned per transaction is fixed with the producers
determine the price for the sale of each subscription, and the
Company earns a percentage of what the customer pays. The
performance obligation is providing the subscription hosting medium
and billing services. Accordingly, the Company reports premium
subscription revenue on a net basis over the subscription service
period in which the performance obligation is
satisfied.
Advertising – The Company
recognizes revenue from the insertion of advertisements in digital
media. The performance obligation is the download of the digital
media with the advertisement inserted. The performance obligation
to recognized advertising revenue is satisfied upon delivery of the
media download and collection is probable.
Equity-Based
Compensation - Our equity-based awards are comprised of
options and stock and are accounted for using the fair value
method. We grant options at exercise prices equal to the fair
market value of our common stock as reported on the OTCQB on the
date of grant. We measure and recognize compensation expense for
equity-based awards made to employees and directors based on the
grant date fair values of the awards. Stock is measured based on
the fair market value of the underlying common stock on the date of
grant. For options with service or performance-based vesting
conditions, the grant date fair value is estimated using the
Black-Scholes option-pricing model, which requires management to
make assumptions and apply judgment in determining the grant date
fair value. Options and award vest and compensation is recognized
over the requisite service period. The measurement date for
performance vesting awards is the date on which the applicable
performance criteria are approved by our board of directors. Key
assumptions used in the determination of fair value for stock
options are as follows:
9
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – continued
Expected
term. The expected term represents the period the options
are expected to be outstanding. Because of the lack of sufficient
historical data necessary to calculate the expected term, we use
the simple average of the vesting period and the contractual term
to estimate the expected term.
Expected
volatility. We determine the expected stock price volatility
based on the historical volatilities of our common
stock.
Expected
dividend yield. We do not use a dividend rate due to our
expectation of not paying dividends in the foreseeable
future.
Risk-free
interest rate. We base the risk-free interest rate on the
yield curve of a zero-coupon U.S. Treasury bond with a maturity
equal to the expected term of the option on the grant
date.
Leases
– The Company
accounts for leases in accordance with Accounting Standards
Codification (“ASC”) Topic 840. Leases that meet one or
more of the capital lease criteria of standard are recorded as a
capital lease, all other leases are operating
leases.
Earnings Per
Share – The Company computes earnings per share in
accordance with FASB ASC Topic 260 Earnings Per Share, which
requires the Company to present basic earnings per share and
diluted earnings per share when the effect is dilutive (see Note
9).
Income
Taxes – The Company accounts for income taxes in
accordance with FASB ASC Topic 740 Accounting for Income Taxes.
This topic requires an asset and liability approach for accounting
for income taxes (See Note 7).
Recently Enacted
Accounting Standards - In February 2016, the FASB issued
changes to the accounting for leases that primarily affect
presentation and disclosure requirements. The new standard will
require the recognition of a right to use asset and underlying
lease liability for operating leases with an initial life in excess
of one year. This standard is effective for us beginning in the
first quarter of 2019. We have not yet determined the impact of the
new standard on our consolidated financial
statements.
Recent accounting pronouncements
issued by the FASB did not or are not believed by management to
have a material impact on the Company’s present or future
financial statements.
NOTE 2 - PROPERTY &
EQUIPMENT
The following is a summary of property and
equipment at:
|
Life
|
March 31,
2018
|
December 31,
2017
|
|
|
|
|
Furniture, fixtures, and
equipment
|
3-10
yrs
|
$8,032,178
|
$8,032,178
|
Leasehold improvements
|
3-5
yrs
|
2,646,400
|
2,646,400
|
Software
|
3
yrs
|
6,503
|
6,503
|
|
10,685,081
|
10,685,081
|
|
Less: Accumulated
depreciation
|
|
(7,980,627)
|
(7,678,056)
|
Property & equipment,
net
|
|
$2,704,454
|
$3,007,025
|
Depreciation expense for the three months ended
March 31, 2018 and 2017 was $302,571 and $4,304,
respectively.
10
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE
ASSETS
Impairment - During the fourth quarter of 2017,
management performed its annual test of impairment of goodwill by
comparing the net carrying value of the intangible asset with the
fair value of the reporting units. Based upon the results of this
analysis, it was determined that the goodwill was not
impaired.
Goodwill
- The following is a summary of goodwill:
|
March 31,
|
December 31,
|
|
2018
|
2017
|
Goodwill at beginning of
period
|
$16,352,069
|
$11,484,251
|
Acquisition of Pair
|
36,102
|
4,867,818
|
Impairment
|
-
|
-
|
Goodwill at end of period
|
$16,388,171
|
$16,352,069
|
During the first quarter of
2018, the Company completed its net-working capital closing
adjustment for the acquisition of Pair, resulting in an additional
allocation of $36,102 of goodwill.
Other
definite-life intangible assets - Other intangible assets consist of customer
relationships, intellectual property, trade name and non-compete,
which were generated through the acquisition of Pair. Management
considers these intangible assets to have finite-lives except trade
name. These assets are being amortized on a straight-line basis
over their estimated useful lives.
As of March 31,
2018, identifiable intangible
assets consist of following:
|
Preliminary
Fair Value
|
Weighted Average
Useful Life
(in Years)
|
Accumulated
Amortization
|
Net Carrying
Amount
|
Customer Relationships
|
$3,947,000
|
7
|
$140,965
|
$3,806,035
|
Intellectual Property
|
3,709,000
|
7
|
132,464
|
3,576,536
|
Trade name
|
576,000
|
10
|
14,400
|
561,600
|
Non-compete
|
1,412,000
|
2
|
176,500
|
1,235,500
|
Total
|
$9,644,000
|
|
$464,329
|
$9,179,671
|
NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS -
Continued
The estimated future
amortization expenses related to other intangible assets as of
March 31, 2018 are as follows:
For
twelve months ending March 31,
|
|
2019
|
$1,857,314
|
2020
|
1,680,814
|
2021
|
1,151,314
|
2022
|
1,151,314
|
2023
|
1,151,314
|
Thereafter
|
2,187,601
|
Total
|
$9,179,671
|
NOTE 4 - LOANS
On December 27, 2017, the
Company entered into a loan agreement (the “Loan
Agreement”) among the Company, Libsyn, and Pair, together,
and First Commonwealth Bank, a Pennsylvania bank and trust company
(the “Bank”).
11
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4 – LOANS -
Continued
The Loan Agreement provides
for: (i) a revolving credit facility pursuant to which the Company
may borrow an aggregate principal amount not to exceed $2,000,000
(the “Revolving Credit Facility”); and (ii) a term loan
in a principal amount equal to $8,000,000 (the “Term
Loan” and, together with the Revolving Credit Facility, the
“Facility”). A portion of the Revolving Credit
Facility, up to $500,000, may be used for standby letters of credit
for the account of the Company. As of March 31, 2018, $2,000,000
was drawn down on the revolving line with $0
available.
The loan accrues interest at LIBOR plus 175 base
points or prime plus 75 basis points at the election of the
Company. As of March 31, 2018, the Company has elected LIBOR plus
175 basis points or 3.625%.
The Term Loan
is repayable in quarterly installments of $400,000 commencing on
March 30, 2018 and on the last day of each June, September,
December and March thereafter, through and including September 30,
2022. Accrued interest is payable in arrears not less frequently
than quarterly. The remaining unpaid principal balance of the Term
Loan, together with accrued interest thereon, is due and payable in
full on December 27, 2022. The Term Loan also calls for additional
payment equal to the following: 1)100% of the proceeds from the
sale of any common shares 2) 100% of the proceeds from the sale of
assets not immediately replaced 3)excess liquidity in any given
year up to $1,066,667 a year and no more than $3,200,000 over the
life of the term loan. As of March 31, 2018, the balance on the
term loan was $7,600,000.
The Company, Libsyn and
Pair have granted the bank a blanket security interest in their
respective assets, and the Company has pledged the stock of
Webmayhem Inc. and Pair Networks Inc. to the bank, as security for
all obligations under the Loan Agreement.
Borrowings under
the Facility are at variable rates which are, at the
Company’s option, tied to LIBOR
(London Interbank Offered Rate) plus an applicable rate or a prime
rate. Interest rates are subject to change based on the
Company’s combined cash balances. The Facility contains
covenants that may have the effect of limiting the ability of the
Company to, among other things, merge with or acquire other
entities, enter into a transaction resulting in a change in
control, create certain new liens, incur certain additional
indebtedness, engage in certain transactions with affiliates,
engage in new lines of business or sell a substantial part of its
assets. The Facility also requires the Company to maintain certain
consolidated fixed charge coverage ratios and minimum liquidity
balances.
The Facility also contains
customary events of default, including (but not limited to) default
in the payment of principal or, following an applicable grace
period, interest, breaches of the Company’s covenants or
warranties under the Facility, payment default or acceleration of
certain indebtedness of the Company or any subsidiary, certain
events of bankruptcy, insolvency or liquidation involving the
Company or its subsidiaries, certain judgments or uninsured losses,
changes in control and certain liabilities related to ERISA based
plans.
On December 27, 2017, the
Company drew $10,000,000 under the Facility to finance a portion of
the cash consideration payable to the Seller pursuant to the Share
Purchase Agreement. Debt issuance costs of $113,000 for the
Facility were recorded as a discount and will be amortized over the
life of the Facility. As of March 31, 2018, the discount was
$103,977.
Future maturities of the loans at March 31, 2018
are as follows:
For
the year ending March 31,
|
|
2019
|
$1,600,000
|
2020
|
1,600,000
|
2021
|
1,600,000
|
2022
|
1,600,000
|
2023
|
3,200,000
|
Thereafter
|
-
|
Total
|
$9,600,000
|
12
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK
Common
Stock - The Company has authorized 200,000,000 shares of
common stock, $0.001 par value. As of March 31, 2018, 29,776,974
shares were issued and outstanding.
During the first quarter of 2018, the Company
issued 200,000 shares of common stock valued at $318,000 to a
consultant for services rendered.
During the first quarter of 2018, the seller of
Pair Networks Inc., returned 18,499 shares valued at $29,413 to the
company as per the terms of the acquisition agreement dated
December 27, 2017 in connect the closing adjustment for the
net-working capital provision.
During the first quarter 2017, the Company
issued 3,650,000 shares of common stock valued at $1,752,000 to
officers and directors.
NOTE 6 – DEFERRED
REVENUE
Deferred revenue consists of the
following:
|
March 31,
2018
|
December 31,
2017
|
Current:
|
|
|
Hosting services
|
$1,501,482
|
$1,032,000
|
Domains
|
295,757
|
104,172
|
Media subscription
|
112,886
|
111,514
|
|
$1,910,125
|
$1,247,686
|
Noncurrent:
|
|
|
Hosting services
|
79,752
|
50,351
|
Domains
|
181,062
|
83,266
|
|
$2,170,939
|
$1,381,303
|
The increase in the deferred revenue balance is
primarily driven by payments received in advance of satisfying our
performance obligations, offset by revenue recognized during the
three months ended March 31, 2018 that was included in the
deferred revenue balance as of December 31, 2017. The deferred
revenue balance as of March 31, 2018 represents our aggregate
remaining performance obligations that will be recognized as
revenue over the period in which the performance obligations are
satisfied.
Deferred revenue as of March 31, 2018 is
expected to be recognized as revenue as
follows:
|
Remainder of
2018
|
2019
|
2020
|
2021
|
2022
|
Thereafter
|
Total
|
Domains
|
$239,758
|
$119,934
|
$52,213
|
$32,902
|
$23,102
|
$8,610
|
$476,819
|
Hosting
|
1,417,173
|
164,062
|
-
|
-
|
-
|
-
|
1,581,235
|
Media Subscription
|
109,798
|
3,087
|
-
|
-
|
-
|
-
|
112,885
|
|
$1,766,729
|
$287,083
|
$52,513
|
$32,902
|
$23,102
|
$8,610
|
$2,170,939
|
13
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 6 – DEFERRED REVENUE -
Continued
Disaggregated revenue consists of
following:
|
Three Months Ended March
31,
|
|
|
2018
|
2017
|
Hosting services
|
$2,061,495
|
$-
|
Podcast Hosting
|
2,501,107
|
1,931,188
|
Advertising
|
320,664
|
480,891
|
Domains
|
71,796
|
-
|
Other
|
104,243
|
82,032
|
|
$5,059,305
|
$2,494,111
|
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in
accordance with FASB ASC Topic 740, Accounting for Income Taxes
which requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting and
any available operating loss or tax credit carryforwards. At March
31, 2018 and December 31, 2017, the total of all deferred tax
assets was $1,336,905 and $3,458,667, respectively, and the total
of the deferred tax assets related to goodwill was $0 and
$2,214,117, respectively. The 2017
deferred tax asset was fully allowed for in the year. The
amount of and ultimate realization of the benefits from the
deferred tax assets for income tax purposes is dependent, in part,
upon the tax laws in effect, the Company’s future earnings,
and other future events, the effects of which cannot be determined.
Management has analyzed the health
of the Company and it is now more likely than not that the company
will likely have strong income from operations moving forward.
Therefore, the valuation allowance has been relieved. The change in
the valuation allowance for the three months ended March 31, 2018
and 2017 was $1,336,905 and $127,777,
respectively.
The components of income tax expense (benefit)
from continuing operations for the three months ended March 31,
2018 and 2017 consist of the following:
14
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES –
continued
A reconciliation of income tax expense as the
federal statutory rate to income tax expense at the Company’s
effective rate is as follows:
|
March 31,
2018
|
March 31,
2017
|
|
|
|
Computed tax at the expected statutory
rate
|
$ 65,846
|
$ -
|
State and local income taxes, net of
federal
|
-
|
-
|
Other non-deductible
expenses
|
-
|
-
|
Valuation
Allowance
|
(1,336,905)
|
-
|
Income tax (benefit) expense
|
$ (1,271,059)
|
$ -
|
The temporary differences, tax credits and
carryforwards gave rise to the following deferred tax asset at
March 31, 2018 and 2017:
|
March 31,
|
March 31,
|
|
2018
|
2017
|
Current deferred tax assets
(liabilities):
|
|
|
Allowance for doubtful
accounts
|
$ -
|
$ -
|
Vacation accrual
|
-
|
-
|
Total current deferred tax assets
(liabilities)
|
-
|
-
|
|
|
|
Long-term deferred tax assets
(liabilities):
|
|
|
|
|
|
Long-term deferred tax assets
(liabilities):
|
|
|
Depreciation and
amortization
|
(131,054)
|
-
|
Deferred revenue
|
7,015
|
-
|
Non-cash compensation
|
1,460,944
|
-
|
Goodwill - impaired
|
-
|
2,066,632
|
Intangible assets – tax
amortization
|
-
|
(3,915,349)
|
Net
operating loss carryforward
|
-
|
5,307,384
|
Valuation
allowance
|
-
|
(3,458,667)
|
Net
term deferred tax assets (liabilities)
|
$ 1,336,905
|
$ -
|
At March 31, 2018, the company has loss
carryforwards of $0.
We file U.S. federal, and U.S. states returns,
and we are generally no longer subject to tax examinations for
years prior to 2015 for U.S. federal and U.S. states tax
returns.
NOTE 8 - LEASES
Operating
Lease - The Company leases two office spaces in Pittsburgh,
Pennsylvania. The corporate headquarters’ lease is for $4,841
a month through April 2022. The office space for Pair is $34,400 a
month through September 2022.
The future minimum lease payments for
non-cancelable operating leases having remaining terms in excess of
one year as of March 31, 2018 are as follows:
Year ending March
31:
|
Lease Payments
|
2019
|
466,260
|
2020
|
466,260
|
2021
|
466,260
|
2022
|
262,176
|
Thereafter
|
4,841
|
Total Minimum Lease Payment
|
$1,665,797
|
Lease expense charged to operations was $153,337
and $74,399 for the three months ended March 31, 2018 and 2017,
respectively.
15
LIBERATED SYNDICATION INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 9 –EARNINGS PER
SHARE
The following data shows the amounts used in
computing earnings per share and the weighted average number of
shares of common stock outstanding for the periods presented for
the periods ended:
|
For the Three Months Ended
March 31,
|
|
|
2018
|
2017
|
Income (loss) from operations available to
common stockholders (numerator)$
|
$ 1,803,974
|
(451,138)
|
Net
income (loss) available to common stockholders
(numerator)
|
1,803,974
|
(451,138)
|
Weighted average number of common shares
outstanding during the period used in earnings per share
(denominator)
|
29,644,362
|
23,725,860
|
NOTE 10 – COMMITMENTS AND
CONTINGENCIES
After the Spin-Off, FAB Universal Corp.
(“FAB”), the former parent company of the Company, may
have obligations that at the present time are unknown or
unforeseen. As the nature of such obligations are unknown, we are
unable to provide an estimate of the potential obligation. However,
should FAB incur such obligations, the Company may be financially
obligated to pay any losses incurred.
The Company has a 401 (k) plan and Profit
sharing plan for the benefit of the employees of the Company.
Employees are eligible to participate in the plan the first of the
month following their hire date and attaining the age of 21. Profit
sharing contributions are made at the discretion of the Board of
Directors and vest 100% after the second year of service. During
the first three months in 2018, the Company did not make profit
sharing contributions to the plan. During the first three months of
2017, the Company made a $100,000 profit sharing contribution to
the plan.
NOTE 11 - SEGMENT REPORTING
ASC 280, “Segment Reporting”,
establishes standards for reporting information about operating
segments on a basis consistent with the Company's internal
organizational structure as well as information about geographical
areas, business segments and major customers in financial
statements for details on the Company's business
segments.
The Company is engaged in providing hosting
services. The Company's chief operating decision maker
(“CODM”) has been identified as the CEO who reviews the
financial information of separate operating segments when making
decisions about allocating resources and assessing performance of
the group. Based on management's assessment, the Company has
determined that it has two operating segments as of March 31, 2018
which are podcast hosting services (Libsyn) and internet hosting
services (Pair).
The following table presents summary information
by segment for the three months ended March 31, 2018 and 2017,
respectively:
|
2018
|
2017
|
||||
(in
thousands)
|
Libsyn
|
Pair
|
Total
|
Libsyn
|
Pair
|
Total
|
|
|
|
|
|
|
|
Revenue
|
$ 2,882
|
$ 2,177
|
$ 5,059
|
$ 2,494
|
$ -
|
$ 2,494
|
Cost
of revenue
|
534
|
173
|
707
|
617
|
-
|
617
|
Gross margin
|
2,348
|
2,004
|
4,352
|
1,877
|
-
|
1,877
|
|
|
|
|
|
|
|
Total assets
|
$ 19,019
|
$ 18,177
|
$ 37,196
|
$ 17,569
|
$ -
|
$ 17,569
|
Depreciation and
amortization
|
$ 8
|
$ 759
|
$ 767
|
$ 4
|
$ -
|
$ 4
|
NOTE 12 - SUBSEQUENT EVENTS
Management has evaluated
subsequent events through the date of the filing of this
report.
16
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 13 – RESTATEMENT
OF PREVIOUSLY REPORTED UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL
STATEMENTS
Background of the
Restatement
On April 28, 2020, the Audit Committee of the
Board of Directors of Liberated Syndication Inc, a Nevada
corporation (the “Company”) determined that (a) the
Consolidated Balance Sheet as of December 31, 2018, (b) the
Consolidated Statement of Operations for the year ended December
31, 2018, (c) the Statement of Stockholders’ Equity for the
year ended December 31, 2018, and (d) the Consolidated Statement of
Cash Flows for the year December 31, 2018, all as presented in the
Company’s Annual Report on Form 10-K for the Period Ended
December 31, 2018, as previously filed with the U.S. Securities and
Exchange Commission on March 14, 2019, should not be relied upon.
Subsequent to such determination, the
Company reviewed the related interim financial statements and
interim financial statements for the first three quarters of 2019
and 2018, and as a result of such review, on May 20, 2020, the
Audit Committee determined that such interim financial statement
should likewise no longer be relied
upon.
Specifically, the amounts reported in the
Consolidated Balance Sheet as of March 31, 2018 for total assets,
current liabilities, and consequently total liabilities and total
stockholders’ equity, were determined to be materially
different. Additionally, the income tax benefit in the Consolidated
Statement of Operations for the three months ended March 31, 2018
was changed. As a result, the net income and the basic and diluted
income per common share were determined to be materially different.
The Consolidated Statement of Cash Flows for the three months ended
March 31, 2018 also changed as a result of the deferred income
taxes and income tax payable for 2018.
During the 2019 audit process, it was discovered
through an ongoing IRS examination it was discovered that the
Company owed Federal tax for 2018.
The IRS examination uncovered an error in
calculating the Net Operating Loss Carryforward (NOL) resulting
from the spin-off of Libsyn in 2016. At December 31, 2017, the
Company had recorded an NOL of approximately $14 million. The NOL
was part of deferred tax asset which was valued at $0 on the
balance sheet, as it had a full valuation allowance. Consequently,
the Company was not recognizing tax expenses or the associated tax
payable during 2018. However, as the IRS examination continued, it
has become clear that the $14 million NOL was overestimated by
approximately $12.5 million, and by March 31, 2018, that the NOL
has been completely utilized. The result is that the Company ought
to have begun recording tax expenses in 2018.
This Federal Tax Balance will be paid with an
amended return in 2020.
The Company has temporary tax differences which
result in a deferred tax asset (DTA). Under the provisions of ASC
Topic 740, a DTA is to be recognized for the potential future tax
benefit from a loss carryforward. Full realization of the benefit,
however, depends on the Company having income in future
years.
Because the NOL has been completely utilized and
the Company is now consistently recording profits, a DTA with the
associated payable should have been recorded in 2018. DTAs
represent future income tax benefits. But the tax benefits will be
realized only if there is sufficient taxable income from which the
deductible amount can be deducted.
Impact of the
Restatement
As a result of the restatement, reported net
income from continuing operations was increased by $1,271,059, or
$0.04 per basic and diluted share for the three months ended March
31, 2018. Total assets increased by $1,336,905 at March 31, 2018.
Current and total liabilities increased by $65,846 at March 31,
2018. Accumulated deficit decreased by $1,271,059 at March 31,
2018.
The financial statements
included in this Form 10-Q/A have been restated to reflect the
adjustments described. The table below summarizes the effects of
the restatement on Libsyn’s Unaudited Consolidated Statements
of Operation for the three months ended March 31, 2018 and,
Unaudited Consolidated Balance Sheet at March 31,
2018.
17
In addition to the
restatement of the financial statements, certain information within
Note 7 – Income Taxes to the financial statements has been
restated to reflect the corrections of misstatements discussed
above as well as to add disclosure language as
appropriate.
Unaudited
Consolidated Balance Sheet
|
|||
|
March
31,
2018
As
Reported
|
Corrections
|
March
31,
2018
As
Restated
|
Deferred Tax
Assets
|
-
|
1,336,905
|
1,336,905
|
Total
Assets
|
35,859,463
|
1,336,905
|
37,196,368
|
Income Taxes
Payable
|
-
|
65,846
|
65,846
|
Total Current
Liabilities
|
4,346,148
|
65,846
|
4,411,994
|
Total
Liabilities
|
12,590,660
|
65,846
|
12,656,506
|
Accumulated
Deficit
|
(11,853,972)
|
1,271,059
|
(10,582,913)
|
Stockholder’s
Equity
|
23,268,803
|
1,271,059
|
24,539,862
|
Unaudited
Consolidated Statement of Operations
|
|||
|
Three
months ended
March
31,
2018
As
Reported
|
Corrections
|
Three
months ended
March
31,
2018
As
Restated
|
Income Tax (Benefit)
Expense
|
-
|
(1,271,059)
|
(1,271,059)
|
Net
Income
|
532,915
|
1,271,059
|
1,803,974
|
Basic and Diluted Income
Per Common Share
|
0.02
|
0.04
|
0.06
|
18
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Safe
Harbor Statement.
Statements made in this Form 10-Q which are not
purely historical are forward-looking statements with respect to
the goals, plan objectives, intentions, expectations, financial
condition, results of operations, future performance and business
of the Company, including, without limitation, (i) our ability to
gain a larger share of the home healthcare industry, our ability to
continue to develop services acceptable to our industry, our
ability to retain our business relationships, and our ability to
raise capital and the growth of the home healthcare industry, and
(ii) statements preceded by, followed by or that include the words
"may", "would", "could", "should", "expects", "projects",
"anticipates", "believes", "estimates", "plans", "intends",
"targets", "tend" or similar expressions.
Forward-looking statements involve inherent
risks and uncertainties, and important factors (many of which are
beyond the Company's control) that could cause actual results to
differ materially from those set forth in the forward-looking
statements, including the following, in addition to those contained
in the Company's reports on file with the Securities and Exchange
Commission: general economic or industry conditions, nationally
and/or in the communities in which the Company conducts business,
changes in the interest rate environment, legislation or regulatory
requirements, conditions of the securities markets, changes in the
home healthcare industry, the development of services that may be
superior to the services offered by the Company, competition,
changes in the quality or composition of the Company's services,
our ability to develop new services, our ability to raise capital,
changes in accounting principles, policies or guidelines, financial
or political instability, acts of war or terrorism, other economic,
competitive, governmental, regulatory and technical factors
affecting the Company’s operations, services and
prices.
Accordingly, results actually achieved may
differ materially from expected results in these statements.
Forward-looking statements speak only as of the date they are made.
The Company does not undertake, and specifically disclaims, any
obligation to update any forward-looking statements to reflect
events or circumstances occurring after the date of such
statements.
Company
Overview
Founded in 2015, Liberated Syndication Inc
(“the “Company,”, “parent”,
“we,” or “us” and words of similar import),
a Nevada corporation, provides podcast hosting services through its
wholly-owned subsidiary Webmayhem Inc., a Pennsylvania corporation
(“Libsyn”), and webhosting services through its
wholly-owned subsidiary Pair Networks, Inc., a Pennsylvania
corporation (“Pair” or “PNI”).
Libsyn’s focus is on our podcasting business, while
Pair’s focus is on webhosting and
domains.
Podcast Hosting and
Distribution
Libsyn is a Podcast Service Provider offering
hosting and distribution tools which include storage, bandwidth,
RSS creation, destination distribution and audience statistics and
analytics. Podcast producers can chose from a variety of hosting
plan levels based on the requirements for their podcast. Plans are
designed to provide full-featured podcast tools with generous
storage and bandwidth transfer.
Podcast producers can
choose from a variety of hosting plan levels based on the
requirements for their podcast. Podcast producers’ sign-up
online at www.libsyn.com, using their credit card to subscribe to a
monthly plan. Libsyn’s standard plans range for $5 to $75 per
month. LibsynPRO service is an enterprise solution for professional
media producers and corporate customers that require media network
features and dedicated support. LibsynPro revenue consists
primarily of monthly hosting fees and bandwidth usage charges.
Other professional level add-ons, such as set-up fees and custom
features, represent a small portion of LibsynPro
revenue.
During the first three
months of 2018, Libsyn generated 70% of its revenue from Podcast
hosting fees paid by Libsyn4 Producers. LibsynPro revenue is 18% of
overall revenues, and Advertising revenue makes up 10% revenues.
App subscriptions make up 2% of total Libsyn revenues. During the
first three months of 2017, those revenues contributions were 62%
for Libsyn4, 16%, for LibsynPro, 19% for Advertising and 3% for App
subscriptions.
19
Trends in the number of
podcast shows on the Libsyn network and podcast consumption affect
our revenue and financial results as they are directly related to
cash flow and cost of revenue. Management believes that over the
next 3 months, growth in the podcasting industry and Libsyn’s
market leadership will continue to fuel expansion of the Libsyn
network and revenue. The Company expects to see year-over-year
bandwidth usage continue to grow in 2018.
Pair Networks, Inc.
(“Pair”)
Pair offers a variety of hosting plan levels,
value add Internet services and domain registration. Through the
Pair Account Control Center (ACC), customers can manage their
hosting accounts and domains from one place.
Customers can choose from a variety of web
hosting plan levels based on their requirements and applications.
Pair Hosting offers shared servers, virtual private servers,
dedicated servers and Pair cloud technology as managed services.
With over twenty years of experience in Internet hosting, Pair has
the expertise to build and manage reliable and powerful hosting
solutions. The managed service and 24x7 support allow customers to
focus on their core business without having to worry about
hardware, operating systems, network connectivity or
uptime.
Share web hosting is a great option for startup
or smaller businesses as the website sits on the same server with
other websites and shares resources such as memory and Central
Processing Unit (CPU). Basic website applications such as email and
file sharing are ideal for shared server
offerings.
Results of
Operations
Three Months Ended
March 31, 2018 and 2017.
During the three months ended March 31, 2018,
the Company recorded revenues of $5,059,305, a 103% increase over
revenues of $2,494,111 for the same period in 2017. The increase
for 2018 reflects an increase in Libsyn4 hosting revenue as well as
LibsynPro, offset by decreases in Premium Subscription and
Advertising revenue. Pair contributed $2,177,115 of revenue during
the first quarter of 2018. Libsyn4 hosting revenue increased due to
the 30% growth in the number of podcasts on the network when
comparing the first quarter of 2018 versus 2017. LibsynPro revenue
increased as a result of additional LibsynPro networks using our
platform in 2018 with increased bandwidth usage fees for delivery
of podcasts contributing to the majority of the revenue gain.
Advertising revenue decreased 37% in the first quarter of 2018
versus 2017. The decrease resulted from decrease in the dollars
being spent on ad campaigns during the first quarter of 2018 with
existing advertisers. Premium subscription revenue increased
$23,409.
During the three months ended March 31, 2018,
cost of revenue totaled $707,370, a 15% increase as compared to
$617,054 for the same period in 2017. This is a reflection of the
increase the ad sharing that is being paid to producers in 2018
versus 2017. Pair contributed $170,800 to cost of revenue during
the first quarter of 2018.
The Company recorded total operating expenses of
$4,438,140 during the three months ended March 31, 2018, a 37%
increase as compared to operating expenses of $3,252,205 in the
same period of 2017. During the first quarter of 2018, cost of
revenue totaled $707,370, a 15% increase as compared to $617,054
for the same period in 2017. The increase is due to the acquisition
of Pair in December 2017. This increase is offset by the decrease
in ad sharing from Libsyn during the first three months of 2018
when compared to the same period in 2017. Libsyn contributed
$534,569 while Pair contributed $172,801 to the cost of revenue
during the first quarter of 2018. The increase in general and
administrative was primarily driven by the addition of the Pair
business, offset by a decrease in non-cash compensation. General
and administrative expenses totaled $1,387,312 in 2018 versus
$468,247 in 2017, an increase of 196%. Technology expenses
represented $373,326 in 2018 versus $143,042 in 2017, driven by an
increase in wages from the addition of Pair during 2018. Selling
expenses in 2018 were $217,002 versus $76,038 in 2017 with the
addition of the selling team for Pair. Customer support expenses in
2018 were $668,230 versus $191,820 in 2017 driven by the 24/7
support provided by Pair.
Interest expense for the first quarter of 2018
was $100,596, which represents interest on the loan facility
obtained in connection with the acquisition of
Pair.
Income tax benefit for the three months ended
March 31, 2018 was $1,271,059, which represents the deferred tax
asset from the 2018 tax provision and the expected federal balance
due for 2018. The income tax payable will be payable with the
amended return in 2020.
The Company’s net income was $1,803,974
for the three months ended March 31, 2018. This represents a
$2,562,368 increase from our net loss of $758,394 for the three
months ended March 31, 2017.
20
Liquidity and Capital
Resources.
Cash on hand was $6,587,745 at March 31, 2018,
an increase of $1,375,900 over the $5,211,845 on hand at December
31, 2017. Cash provided by operations for the three months ended
March 31, 2018, was $1,792,870, an increase of $1,345,395 over the
$447,475 cash provided by operations for the three months ended
March 31, 2017. The contribution from Pair of this cash generation
totaled $608,140, and Libsyn added $737,255. This increase is
driven from our operating results of both segments of our
business.
Cash used in financing activities was $416,970
for the three months ended March 31, 2018 and $0 in 2017. During
the first quarter, we made our payment on the loan used to acquire
Pair, $400,000 as well as $16,970 of payments on our capital
lease.
The increase in cash of $1,375,900 during the
first quarter of 2018 is a reflection of the strength of the
overall business during the quarter.
Off-balance sheet
arrangements
We have operating leases for certain facilities,
but otherwise do not have any off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future
material effect on our financial condition, results of operations,
liquidity, or capital resources.
The future minimum lease payments for
non-cancelable operating leases having remaining terms in excess of
one year as of March 31, 2018 are as follows:
Year ending March
31:
|
Lease Payments
|
2019
|
466,260
|
2020
|
466,260
|
2021
|
466,260
|
2022
|
262,176
|
Thereafter
|
4,841
|
Total Minimum Lease Payment
|
$1,665,797
|
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk.
Not required for smaller reporting
companies.
Item 4.
Controls and Procedures.
(a) Evaluation of Disclosure
Controls and Procedures
Our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934
(the "Exchange Act")), which we refer to as disclosure controls,
are controls and procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports
filed under the Exchange Act, such as this report, is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls are also designed with the objective of
ensuring that such information is accumulated and communicated to
our management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. There are inherent limitations to
the effectiveness of any control system. A control system, no
matter how well conceived and operated, can provide only reasonable
assurance that its objectives are met. No evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within our company have been
detected.
As of March 31, 2018, an evaluation was carried
out under the supervision and with the participation of our
management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation
of our disclosure controls. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that,
as of such date, the design and operation of these disclosure
controls were not effective to accomplish their objectives at the
reasonable assurance level due to the identification of errors
which led to certain of our financial statements being restated. On
an on-going basis we will evaluate the adequacy of our controls and
procedures.
21
(b) Changes in Internal
Control over Financial Reporting
No change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act), occurred during the fiscal quarter ended March 31,
2018 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
Liberated Syndication Inc. is involved in
routine legal and administrative proceedings and claims of various
types. We have no material pending legal or administrative
proceedings, other than ordinary routine litigation incidental to
our business, to which we or any of our subsidiaries are a party or
of which any property is the subject.
Item
1A. Risk Factors.
Not required for smaller reporting
companies.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds.
None; not
applicable.
Item 3.
Defaults Upon Senior Securities.
None; not
applicable.
Item 4.
Mine Safety Disclosures.
None; not
applicable.
Item 5.
Other Information.
None; not applicable.
(a)
During the quarterly period ended March 31,
2018, there were no changes to the procedures by which
shareholders’ may recommend nominees to the Company’s
board of directors.
Item 6.
Exhibits.
(iii)
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
302 Certification of Christopher J.
Spencer
|
|
|
|
|
|
|
|
302 Certification of Gabriel J. Mosey
|
|
|
|
|
|
|
|
906 Certification
|
|
|
|
|
|
|
101.1
|
|
The following
materials from the Registrant’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2018 are formatted in XBRL
(eXtensible Business Reporting Language): (i) the Condensed
Consolidated Balance Sheets, (ii) the Condensed Consolidated
Statements of Operations, (iii) the Condensed Consolidated
Statements of Cash Flows, and (iv) Notes to Condensed
Consolidated Financial Statements
|
22
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
|
7/10/2020
|
|
By:
|
/s/ Christopher J.
Spencer
|
|
|
|
|
Christopher J.
Spencer
|
|
|
|
|
Chief Executive Officer and
President
|
Date:
|
7/10/2020
|
|
|
/s/ Gabriel J.
Mosey
|
|
|
|
|
Gabriel J.
Mosey
|
|
|
|
|
Interim Chief Financial
Officer
|
23